Penske Automotive (PAG) - 2024 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides the unaudited consolidated condensed financial statements and related notes for the first quarter of 2024 Item 1. Financial Statements This section presents the unaudited consolidated condensed financial statements for Q1 2024, including balance sheets, income statements, cash flow statements, and statements of equity, along with detailed notes on accounting policies and segment information Consolidated Condensed Balance Sheets This section provides a snapshot of the company's financial position at March 31, 2024, compared to December 31, 2023 Consolidated Condensed Balance Sheets (March 31, 2024 vs. December 31, 2023) | Metric (in millions) | March 31, 2024 | December 31, 2023 | | :------------------- | :------------- | :---------------- | | ASSETS | | | | Cash and cash equivalents | $116.9 | $96.4 | | Total current assets | $5,810.6 | $5,679.7 | | Total assets | $16,146.5 | $15,671.5 | | LIABILITIES AND EQUITY | | | | Floor plan notes payable | $2,376.7 | $2,255.6 | | Total current liabilities | $5,910.1 | $5,657.9 | | Total liabilities | $11,300.4 | $10,915.9 | | Total equity | $4,846.1 | $4,755.6 | | Total liabilities and equity | $16,146.5 | $15,671.5 | - Total assets increased by $475 million from December 31, 2023, to March 31, 2024, primarily driven by increases in inventories and property and equipment[11] - Total liabilities increased by $384.5 million, with floor plan notes payable and accounts payable being significant contributors to the increase[11] Consolidated Condensed Statements of Income This section details the company's financial performance for the three months ended March 31, 2024, compared to the prior year Consolidated Condensed Statements of Income (Three Months Ended March 31, 2024 vs. 2023) | Metric (in millions, except per share) | 2024 | 2023 | Change | % Change | | :----------------------------------- | :---------- | :---------- | :---------- | :---------- | | Total revenues | $7,447.8 | $7,339.0 | $108.8 | 1.5% | | Gross profit | $1,245.2 | $1,252.3 | $(7.1) | (0.6)% | | Operating income | $327.6 | $373.5 | $(45.9) | (12.3)% | | Income before income taxes | $294.8 | $406.9 | $(112.1) | (27.6)% | | Net income attributable to PAG common stockholders | $215.2 | $298.3 | $(83.1) | (27.9)% | | Basic earnings per share | $3.21 | $4.31 | $(1.10) | (25.5)% | | Cash dividends per share | $0.87 | $0.61 | $0.26 | 42.6% | - Total revenues increased by 1.5% year-over-year, primarily driven by retail automotive dealership revenue growth[13] - Net income attributable to common stockholders decreased by 27.9% and basic EPS decreased by 25.5% year-over-year, largely due to lower operating income and equity in earnings of affiliates[13] Consolidated Condensed Statements of Comprehensive Income This section presents the company's comprehensive income, including net income and other comprehensive income, for the three months ended March 31, 2024 Consolidated Condensed Statements of Comprehensive Income (Three Months Ended March 31, 2024 vs. 2023) | Metric (in millions) | 2024 | 2023 | Change | % Change | | :------------------- | :------ | :------ | :------- | :------- | | Net income | $216.2 | $299.6 | $(83.4) | (27.8)% | | Other comprehensive income, net of tax | $(33.0) | $23.1 | $(56.1) | (242.8)% | | Comprehensive income | $183.2 | $322.7 | $(139.5) | (43.2)% | | Comprehensive income attributable to PAG common stockholders | $182.0 | $321.1 | $(139.1) | (43.3)% | - Other comprehensive income shifted from a gain of $23.1 million in Q1 2023 to a loss of $33.0 million in Q1 2024, primarily due to foreign currency translation adjustments[15] Consolidated Condensed Statements of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2024 Consolidated Condensed Statements of Cash Flows (Three Months Ended March 31, 2024 vs. 2023) | Activity (in millions) | 2024 | 2023 | Change | % Change | | :--------------------- | :------- | :------- | :------- | :------- | | Net cash provided by operating activities | $456.0 | $311.2 | $144.8 | 46.5% | | Net cash used in investing activities | $(352.4) | $(105.5) | $(246.9) | 234.0% | | Net cash used in financing activities | $(82.1) | $(211.8) | $129.7 | (61.2)% | | Net change in cash and cash equivalents | $20.5 | $(5.9) | $26.4 | (447.5)% | | Cash and cash equivalents, end of period | $116.9 | $100.6 | $16.3 | 16.2% | - Net cash provided by operating activities increased significantly by 46.5% to $456.0 million, driven by changes in accounts receivable and floor plan notes payable[18] - Net cash used in investing activities more than tripled to $352.4 million, primarily due to $243.6 million in acquisitions during Q1 2024[18] - Net cash used in financing activities decreased by 61.2%, mainly due to lower common stock repurchases and reduced net repayments of non-trade floor plan notes payable[18] Consolidated Condensed Statement of Equity This section details changes in the company's equity for the three months ended March 31, 2024, including retained earnings and other comprehensive income Consolidated Condensed Statement of Equity (Three Months Ended March 31, 2024) | Metric (in millions) | Balance, Dec 31, 2023 | Equity Compensation | Repurchases of Common Stock | Dividends | Foreign Currency Translation | Other | Net Income | Balance, Mar 31, 2024 | | :------------------- | :-------------------- | :------------------ | :-------------------------- | :-------- | :--------------------------- | :---- | :--------- | :-------------------- | | Retained Earnings | $4,990.3 | — | $(25.7) | $(58.6) | — | $(8.1) | $215.2 | $5,113.1 | | Accumulated Other Comprehensive Income (Loss) | $(264.1) | — | — | — | $(36.8) | $3.6 | — | $(297.3) | | Total Penske Automotive Group Stockholders' Equity | $4,726.2 | $7.5 | $(33.2) | $(58.6) | $(36.8) | $(4.5) | $215.2 | $4,815.8 | - Retained earnings increased to $5,113.1 million, primarily due to net income of $215.2 million, partially offset by dividends of $58.6 million and common stock repurchases[21] - Accumulated other comprehensive income (loss) decreased from $(264.1) million to $(297.3) million, mainly due to a negative foreign currency translation adjustment of $(36.8) million[21] Notes to Consolidated Condensed Financial Statements This section provides detailed explanations and disclosures supporting the consolidated condensed financial statements 1. Interim Financial Statements This note describes the company's business operations, recent acquisitions, and the impact of the agency model on revenue reporting - Penske Automotive Group is a diversified international transportation services company, operating automotive and commercial truck dealerships across multiple countries, and holds a 28.9% ownership in Penske Transportation Solutions[26] - The company acquired 16 retail automotive franchises and opened one in the U.K., acquired two dealerships in the U.S., and two in Italy during Q1 2024, and plans to acquire two Porsche and one Ducati dealership in Australia in Q2 2024[29] - The company transitioned some U.K. and European dealerships to an agency model in 2023, where it receives a fee for facilitating new vehicle sales without holding inventory, impacting revenue reporting[28] 2. Revenues This note details the sources of revenue from automotive and commercial truck dealerships and the accounting treatment for agency model sales - Revenue is primarily generated from automotive and commercial truck dealerships, including new/used vehicle sales, finance and insurance products, and service and parts[44] - For dealerships operating under an agency model, only the commission received for facilitating new vehicle sales is reported as new revenue, without a corresponding cost of sale[45] Retail Automotive Dealership Revenue by Product Type (Three Months Ended March 31) | Product Type (in millions) | 2024 | 2023 | Change | % Change | | :------------------------- | :-------- | :-------- | :-------- | :------- | | New vehicle | $2,802.6 | $2,721.3 | $81.3 | 3.0% | | Used vehicle | $2,336.2 | $2,297.1 | $39.1 | 1.7% | | Finance and insurance, net | $206.0 | $206.8 | $(0.8) | (0.4)% | | Service and parts | $746.1 | $683.0 | $63.1 | 9.2% | | Fleet and wholesale | $387.1 | $391.6 | $(4.5) | (1.1)% | | Total | $6,478.0 | $6,299.8 | $178.2 | 2.8% | Retail Commercial Truck Dealership Revenue by Product Type (Three Months Ended March 31) | Product Type (in millions) | 2024 | 2023 | Change | % Change | | :------------------------- | :------ | :------ | :------- | :------- | | New truck | $494.2 | $600.2 | $(106.0) | (17.7)% | | Used truck | $62.4 | $49.5 | $12.9 | 26.1% | | Finance and insurance, net | $5.3 | $5.0 | $0.3 | 6.0% | | Service and parts | $223.6 | $228.0 | $(4.4) | (1.9)% | | Other | $6.3 | $12.9 | $(6.6) | (51.2)% | | Total | $791.8 | $895.6 | $(103.8) | (11.6)% | 3. Leases This note outlines the company's lease obligations and the associated operating lease costs - The company leases land and facilities, with total undiscounted rent obligations estimated at $5.4 billion as of March 31, 2024[64] Net Operating Lease Cost (Three Months Ended March 31) | Metric (in millions) | 2024 | 2023 | Change | % Change | | :------------------- | :----- | :----- | :----- | :------- | | Operating lease cost | $67.3 | $64.4 | $2.9 | 4.5% | | Sublease income | $(3.9) | $(4.2) | $0.3 | (7.1)% | | Total lease cost | $63.4 | $60.2 | $3.2 | 5.3% | 4. Inventories This note provides a breakdown of inventory types and changes from the prior period Inventories (March 31, 2024 vs. December 31, 2023) | Inventory Type (in millions) | March 31, 2024 | December 31, 2023 | | :--------------------------- | :------------- | :---------------- | | Retail automotive dealership new vehicles | $2,001.4 | $1,951.3 | | Retail automotive dealership used vehicles | $1,161.1 | $1,186.3 | | Retail commercial truck dealership vehicles and parts | $645.1 | $543.7 | | Total inventories | $4,424.1 | $4,293.1 | - Total inventories increased by $131 million from December 31, 2023, to March 31, 2024, primarily driven by an increase in retail automotive new vehicles and retail commercial truck vehicles and parts[71] 5. Business Combinations This note details the acquisitions made during Q1 2024, including acquired assets and liabilities - During Q1 2024, the company acquired 16 retail automotive franchises in the U.K. and two in Italy, generating $198.9 million in revenue and $4.9 million in pre-tax income from acquisition date to March 31, 2024[72] Aggregate Consideration Paid and Assets Acquired/Liabilities Assumed (Three Months Ended March 31, 2024) | Item (in millions) | 2024 | | :--------------------------- | :----- | | Accounts receivable | $33.6 | | Inventories | $90.3 | | Property and equipment | $14.9 | | Indefinite-lived intangibles | $185.8 | | Current liabilities | $(55.1)| | Noncurrent liabilities | $(25.9)| | Total cash used in acquisitions | $243.6 | 6. Intangible Assets This note explains changes in goodwill and other indefinite-lived intangible assets due to business combinations and currency translation Changes in Goodwill and Other Indefinite-Lived Intangible Assets (Three Months Ended March 31, 2024) | Metric (in millions) | Goodwill | Other Indefinite Lived Intangible Assets | | :------------------- | :------- | :--------------------------------------- | | Balance, Jan 1, 2024 | $2,234.9 | $748.2 | | Additions | $93.1 | $92.7 | | Foreign currency translation | $(11.4) | $(4.9) | | Balance, Mar 31, 2024 | $2,316.6 | $836.0 | - Goodwill increased by $81.7 million and other indefinite-lived intangible assets increased by $87.8 million, primarily due to additions from business combinations[73] 7. Vehicle Financing This note describes the company's vehicle inventory financing arrangements and associated interest rates - The company finances most vehicle inventories through floor plan and other revolving arrangements with variable interest rates, which increased from 4.0% in Q1 2023 to 4.9% in Q1 2024[74][76] - Floor plan notes payable to non-manufacturers or for pre-owned vehicles are classified as 'Floor plan notes payable — non-trade' and related cash flows as financing activities[76] 8. Earnings Per Share This note presents the weighted average shares outstanding used in calculating basic and diluted earnings per share Weighted Average Shares Outstanding (Three Months Ended March 31) | Metric (in millions) | 2024 | 2023 | | :------------------- | :----- | :----- | | Weighted average number of common shares outstanding | 67.062 | 69.201 | | Weighted average number of common shares outstanding, including effect of dilutive securities | 67.077 | 69.219 | - The weighted average number of common shares outstanding decreased year-over-year, contributing to the calculation of basic and diluted EPS[78] 9. Long-Term Debt This note details the company's long-term debt structure, including credit agreements and senior subordinated notes Long-Term Debt (March 31, 2024 vs. December 31, 2023) | Debt Type (in millions) | March 31, 2024 | December 31, 2023 | | :---------------------- | :------------- | :---------------- | | U.K. credit agreement | $80.8 | — | | 3.50% senior subordinated notes due 2025 | $548.0 | $547.7 | | 3.75% senior subordinated notes due 2029 | $496.0 | $495.8 | | Mortgage facilities | $359.0 | $402.1 | | Total long-term debt | $1,677.2 | $1,629.2 | | Net long-term debt | $1,461.9 | $1,419.5 | - Total long-term debt increased by $48.0 million, with new borrowings under the U.K. credit agreement and senior subordinated notes, partially offset by a decrease in mortgage facilities[79] - The U.S. Credit Agreement provides up to $1.2 billion in revolving loans, with no outstanding borrowings as of March 31, 2024[80][82] 10. Commitments and Contingent Liabilities This note outlines the company's legal proceedings, lease commitments, and other contingent liabilities - The company is involved in various litigations but does not expect any to have a material adverse effect on its financial condition[91] - Lease agreements for larger facilities require compliance with financial ratios (rent coverage, debt to EBITDA), with non-compliance potentially requiring collateral or lease termination[92] - The company has $24.8 million in letters of credit and $16.3 million in bank guarantees outstanding as of March 31, 2024[95] 11. Equity This note provides information on common stock repurchases under the company's securities repurchase program Shares Repurchased Under Securities Repurchase Program (Three Months Ended March 31) | Metric | 2024 | 2023 | | :----------------- | :-------- | :-------- | | Shares repurchased | 221,329 | 890,327 | | Aggregate purchase price | $32.9 million | $110.2 million | | Average purchase price per share | $148.72 | $123.76 | - The company repurchased fewer shares in Q1 2024 compared to Q1 2023, but at a higher average price per share[96] 12. Accumulated Other Comprehensive Income (Loss) This note details changes in accumulated other comprehensive income, primarily due to foreign currency translation adjustments Changes in Accumulated Other Comprehensive Income (Loss) (Three Months Ended March 31) | Component (in millions) | Balance, Dec 31, 2023 | Other Comprehensive Income (Loss), net of tax | Balance, Mar 31, 2024 | | :---------------------- | :-------------------- | :-------------------------------------------- | :-------------------- | | Foreign Currency Translation | $(262.6) | $(36.8) | $(299.4) | | Other | $(1.5) | $3.6 | $2.1 | | Total | $(264.1) | $(33.2) | $(297.3) | - Accumulated other comprehensive income (loss) decreased by $33.2 million, primarily due to negative foreign currency translation adjustments[97] 13. Segment Information This note presents financial data broken down by the company's reportable business segments - The company operates in four reportable segments: Retail Automotive, Retail Commercial Truck, Other (commercial vehicle and power systems distribution), and Non-Automotive Investments (equity method investments)[99] Segment Revenues (Three Months Ended March 31) | Segment (in millions) | 2024 | 2023 | Change | % Change | | :-------------------- | :-------- | :-------- | :-------- | :------- | | Retail Automotive | $6,478.0 | $6,299.8 | $178.2 | 2.8% | | Retail Commercial Truck | $791.8 | $895.6 | $(103.8) | (11.6)% | | Other | $178.0 | $143.6 | $34.4 | 24.0% | | Total | $7,447.8 | $7,339.0 | $108.8 | 1.5% | Segment Income (Three Months Ended March 31) | Segment (in millions) | 2024 | 2023 | Change | % Change | | :-------------------- | :------ | :------ | :------- | :------- | | Retail Automotive | $198.4 | $256.7 | $(58.3) | (22.7)% | | Retail Commercial Truck | $50.5 | $57.1 | $(6.6) | (11.6)% | | Other | $13.6 | $12.1 | $1.5 | 12.4% | | Non-Automotive Investments | $32.3 | $81.0 | $(48.7) | (60.1)% | | Total | $294.8 | $406.9 | $(112.1) | (27.6)% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition for the three months ended March 31, 2024, compared to the same period in 2023 Overview This section provides a high-level description of Penske Automotive Group's diversified international transportation services business - Penske Automotive Group is a diversified international transportation services company, operating automotive and commercial truck dealerships and distributing commercial vehicles and power systems[102] - The company holds a 28.9% ownership in Penske Transportation Solutions (PTS), which manages a large trucking fleet and provides logistics services[102] Business Overview This section details the revenue and gross profit contributions from the company's various business segments Q1 2024 Revenue and Gross Profit by Segment (in millions) | Segment | Revenue | Gross Profit | | :-------------------------- | :------- | :----------- | | Retail automotive dealerships | $6,500.0 | $1,057.2 | | Retail commercial truck dealerships | $791.8 | $144.8 | | Commercial vehicle distribution and other | $178.0 | $43.2 | | Total | $7,447.8 | $1,245.2 | - Retail automotive dealerships accounted for 87.0% of total revenues and 84.9% of total gross profit in Q1 2024[106] - Equity earnings from Penske Transportation Solutions decreased significantly from $80.8 million in Q1 2023 to $32.5 million in Q1 2024[109] Outlook This section discusses market trends and expectations for vehicle sales, inventory levels, and the performance of Penske Transportation Solutions - U.S. new light vehicle sales increased 5.6% in Q1 2024, while U.K. new vehicle registrations increased 10.4%, driven by strong consumer demand and increased inventory[110] - New vehicle days' supply was 40 as of March 31, 2024, up from 39, while used vehicle days' supply decreased to 36 from 48, impacted by lower supply of 1-4 year old vehicles[110] - North American Class 6-8 medium- and heavy-duty truck sales decreased 6.7% in Q1 2024, with replacement demand expected to continue despite a weak freight market[113] - Penske Transportation Solutions expects a sequential increase in earnings in Q2 2024, but anticipates continued lower gain on sale of used trucks and increased operating/interest costs for the full year[115] Operating Overview This section summarizes the overall operating performance, including revenue and gross profit changes, and the impact of foreign currency fluctuations - Automotive and commercial truck dealerships generate over 95% of revenue and 80% of earnings before taxes, with PTS investment contributing approximately 10% of earnings before taxes[117] - Aggregate revenue increased by 1.5% ($108.8 million) while gross profit decreased by 0.6% ($7.1 million) in Q1 2024 compared to Q1 2023[119] - Foreign currency fluctuations favorably impacted revenue by $98.1 million and gross profit by $13.2 million in Q1 2024[120] Critical Accounting Policies and Estimates This section highlights the key accounting policies and estimates that are significant to the company's financial reporting - Key accounting policies and estimates involve revenue recognition, goodwill and other indefinite-lived intangible assets, investments, income taxes, and lease recognition[127] - No material changes in critical accounting policies and estimates were reported compared to the 2023 Annual Report on Form 10-K[127] Results of Operations This section provides a detailed analysis of the financial results across various operational categories Retail Automotive Dealership New Vehicle Data This section analyzes sales volume, revenue, and profitability trends for new retail automotive vehicles Retail Automotive Dealership New Vehicle Data (Three Months Ended March 31) | Metric | 2024 | 2023 | Change | % Change | | :---------------------- | :---------- | :---------- | :---------- | :---------- | | New retail unit sales (excluding agency) | 48,667 | 47,662 | 1,005 | 2.1% | | New agency unit sales | 8,932 | 6,933 | 1,999 | 28.8% | | New sales revenue | $2,802.6 | $2,721.3 | $81.3 | 3.0% | | Average gross profit per new vehicle (excluding agency) | $5,229 | $6,315 | $(1,086) | (17.2)% | | Gross margin % — new | 9.7% | 11.5% | (1.8)% | (15.7)% | - New retail unit sales increased by 2.1%, while new agency unit sales surged by 28.8%[132] - Average gross profit per new vehicle (excluding agency) decreased by 17.2% due to improved supply and sales mix, leading to gross margin compression[132][135] Retail Automotive Dealership Used Vehicle Data This section analyzes sales volume, revenue, and profitability trends for used retail automotive vehicles Retail Automotive Dealership Used Vehicle Data (Three Months Ended March 31) | Metric | 2024 | 2023 | Change | % Change | | :---------------------- | :---------- | :---------- | :---------- | :---------- | | Used retail unit sales | 69,265 | 67,836 | 1,429 | 2.1% | | Used retail sales revenue | $2,336.2 | $2,297.1 | $39.1 | 1.7% | | Average gross profit per used vehicle retailed | $1,876 | $1,808 | $68 | 3.8% | | Gross margin % — used | 5.6% | 5.3% | 0.3% | 5.7% | - Used retail unit sales increased by 2.1%, with same-store sales up 0.2%, despite lower supply of 1-4 year old vehicles and higher interest rates[136][137] - Average gross profit per used vehicle retailed increased by 3.8%, and gross margin improved by 0.3 percentage points, as used vehicle values stabilized after declines in late 2023[136][139] Retail Automotive Dealership Finance and Insurance Data This section analyzes revenue and per-unit profitability from finance and insurance products in retail automotive dealerships Retail Automotive Dealership Finance and Insurance Data (Three Months Ended March 31) | Metric | 2024 | 2023 | Change | % Change | | :---------------------- | :---------- | :---------- | :---------- | :---------- | | Total retail unit sales | 117,932 | 115,498 | 2,434 | 2.1% | | Finance and insurance revenue | $206.0 | $206.8 | $(0.8) | (0.4)% | | Finance and insurance revenue per unit (excluding agency) | $1,719 | $1,773 | $(54) | (3.0)% | - Finance and insurance revenue decreased by 0.4%, with same-store revenue down 2.0%, primarily due to a $54 per unit decrease in revenue per unit (excluding agency)[141] - The decrease in F&I revenue per unit is attributed to rising interest rates impacting customer affordability and increased lease penetration, which limits F&I product sale opportunities[141] Retail Automotive Dealership Service and Parts Data This section analyzes revenue and gross profit trends for service and parts in retail automotive dealerships Retail Automotive Dealership Service and Parts Data (Three Months Ended March 31) | Metric | 2024 | 2023 | Change | % Change | | :---------------------- | :---------- | :---------- | :---------- | :---------- | | Service and parts revenue | $746.1 | $683.0 | $63.1 | 9.2% | | Gross profit — service and parts | $432.4 | $398.9 | $33.5 | 8.4% | | Gross margin % — service and parts | 58.0% | 58.4% | (0.4)% | (0.7)% | - Service and parts revenue increased by 9.2%, with same-store revenue up 4.9%, driven by vehicles remaining on the road longer, increased labor rates, parts costs, and manufacturer recalls[142][143] - Gross profit from service and parts increased by 8.4%, with same-store gross profit up 5.1%[142][144] Retail Commercial Truck Dealership Data This section analyzes sales, revenue, and profitability trends for new and used commercial trucks, as well as service and parts Retail Commercial Truck Dealership New Truck Data (Three Months Ended March 31) | Metric | 2024 | 2023 | Change | % Change | | :---------------------- | :---------- | :---------- | :---------- | :---------- | | New retail unit sales | 3,491 | 4,517 | (1,026) | (22.7)% | | New retail sales revenue | $494.2 | $600.2 | $(106.0) | (17.7)% | | Average gross profit per new truck retailed | $9,909 | $7,190 | $2,719 | 37.8% | | Gross margin % — new | 7.0% | 5.4% | 1.6% | 29.6% | - New retail truck sales decreased by 22.7%, primarily due to unusually high deliveries in the prior year and production timing[146][147] - Average gross profit per new truck retailed increased significantly by 37.8%, and gross margin improved by 1.6 percentage points, driven by higher prices and a favorable sales mix[146][149] Retail Commercial Truck Dealership Used Truck Data (Three Months Ended March 31) | Metric | 2024 | 2023 | Change | % Change | | :---------------------- | :---------- | :---------- | :---------- | :---------- | | Used retail unit sales | 1,049 | 655 | 394 | 60.2% | | Used retail sales revenue | $62.4 | $49.5 | $12.9 | 26.1% | | Average gross profit per used truck retailed | $3,187 | $8,195 | $(5,008) | (61.1)% | | Gross margin % — used | 5.3% | 10.9% | (5.6)% | (51.4)% | - Used retail truck sales increased by 60.2% due to increased availability and affordability of used trucks and limited new truck availability[151][152] - Average gross profit per used truck retailed decreased by 61.1%, and gross margin declined by 5.6 percentage points, primarily due to the decreased value of used trucks and depressed freight spot rates[151][154] Retail Commercial Truck Dealership Service and Parts Data (Three Months Ended March 31) | Metric | 2024 | 2023 | Change | % Change | | :---------------------- | :---------- | :---------- | :---------- | :---------- | | Service and parts revenue | $223.6 | $228.0 | $(4.4) | (1.9)% | | Gross profit — service and parts | $98.1 | $98.3 | $(0.2) | (0.2)% | | Gross margin % — service and parts | 43.9% | 43.1% | 0.8% | 1.9% | - Service and parts revenue decreased by 1.9%, with same-store revenue down 6.5%, mainly due to customers delaying maintenance costs amid low freight rates[155][157] Commercial Vehicle Distribution and Other Data This section analyzes the financial performance of Penske Australia, including unit sales and revenue Penske Australia Data (Three Months Ended March 31) | Metric | 2024 | 2023 | Change | % Change | | :---------------------- | :------ | :------ | :----- | :------- | | Commercial vehicle units (wholesale and retail) | 298 | 279 | 19 | 6.8% | | Power system units | 313 | 304 | 9 | 3.0% | | Sales revenue | $178.0 | $143.6 | $34.4 | 24.0% | | Gross profit | $43.2 | $42.7 | $0.5 | 1.2% | - Penske Australia's revenue increased by 24.0%, and gross profit increased by 1.2%, driven by higher service and parts sales, increased unit sales, and a favorable product mix[159][160] Selling, General, and Administrative Data This section analyzes trends in selling, general, and administrative expenses and their relation to gross profit Selling, General, and Administrative Expenses (Three Months Ended March 31) | Metric (in millions) | 2024 | 2023 | Change | % Change | | :---------------------- | :------ | :------ | :----- | :------- | | Total SG&A expenses | $879.8 | $844.9 | $34.9 | 4.1% | | Same-store SG&A expenses | $845.8 | $840.4 | $5.4 | 0.6% | | Total SG&A expenses as % of gross profit | 70.7% | 67.5% | 3.2% | 4.7% | - Total SG&A expenses increased by 4.1%, with same-store SG&A up 0.6%[161] - SG&A as a percentage of gross profit increased by 320 basis points to 70.7%, mainly due to higher personnel, rent, customer service vehicle loaner, and IT expenses[161][162] Depreciation This section analyzes the increase in depreciation expense, driven by capital expenditures and acquisitions Depreciation (Three Months Ended March 31) | Metric (in millions) | 2024 | 2023 | Change | % Change | | :------------------- | :----- | :----- | :----- | :------- | | Depreciation | $37.8 | $33.9 | $3.9 | 11.5% | - Depreciation increased by 11.5%, driven by capital expenditures and net dealership acquisitions[163] Floor Plan Interest Expense This section analyzes the increase in floor plan interest expense due to higher outstanding amounts and interest rates Floor Plan Interest Expense (Three Months Ended March 31) | Metric (in millions) | 2024 | 2023 | Change | % Change | | :------------------- | :----- | :----- | :------- | :------- | | Floor plan interest expense | $44.8 | $27.9 | $16.9 | 60.6% | - Floor plan interest expense increased by 60.6%, due to higher average outstanding amounts under floor plan arrangements and increased applicable interest rates[164] Other Interest Expense This section analyzes the increase in other interest expense due to higher rates and average revolver borrowings Other Interest Expense (Three Months Ended March 31) | Metric (in millions) | 2024 | 2023 | Change | % Change | | :------------------- | :----- | :----- | :----- | :------- | | Other interest expense | $21.3 | $20.8 | $0.5 | 2.4% | - Other interest expense increased by 2.4%, driven by higher applicable rates and increased average revolver borrowing amounts[165] Equity in Earnings of Affiliates This section analyzes the decrease in equity in earnings from affiliates, primarily from Penske Transportation Solutions Equity in Earnings of Affiliates (Three Months Ended March 31) | Metric (in millions) | 2024 | 2023 | Change | % Change | | :------------------- | :----- | :----- | :------- | :------- | | Equity in earnings of affiliates | $33.3 | $82.1 | $(48.8) | (59.4)% | - Equity in earnings of affiliates decreased by 59.4%, primarily due to a $48.3 million decrease in earnings from the investment in PTS, attributed to lower commercial/consumer rental utilization, higher interest rates, and lower gains from vehicle sales[166] Income Taxes This section analyzes the decrease in income taxes and the effective tax rate, influenced by pre-tax income and geographic mix Income Taxes (Three Months Ended March 31) | Metric (in millions) | 2024 | 2023 | Change | % Change | | :------------------- | :----- | :------ | :------- | :------- | | Income taxes | $78.6 | $107.3 | $(28.7) | (26.7)% | | Effective tax rate | 26.7% | 26.4% | 0.3% | 1.1% | - Income taxes decreased by 26.7% due to a $112.1 million decrease in pre-tax income, with the effective tax rate slightly increasing to 26.7% due to geographic pre-tax income mix[167] Liquidity and Capital Resources This section discusses the company's cash requirements, available liquidity, and capital allocation strategies, including share repurchases and dividends - Cash requirements are primarily for working capital, inventory financing, acquisitions, facility improvements, debt service, dividends, and share repurchases[168] - As of March 31, 2024, the company had $116.9 million in cash and $1.2 billion, £136.0 million ($171.7 million), CAD $38.0 million ($28.1 million), and $221.4 million available for borrowing under various credit and mortgage facilities[173] - The company repurchased 221,329 shares for $32.9 million in Q1 2024, with $182.6 million remaining under the repurchase authorization[175][239] Cash Dividends Per Share | Year | Quarter | Dividend Per Share | | :--- | :------------ | :----------------- | | 2023 | First Quarter | $0.61 | | | Second Quarter| $0.66 | | | Third Quarter | $0.72 | | | Fourth Quarter| $0.79 | | 2024 | First Quarter | $0.87 | - Cash dividends per share increased to $0.87 in Q1 2024 from $0.61 in Q1 2023, reflecting a 42.6% increase[13][177] - Net cash provided by operating activities, including all floor plan notes payable, was $425.3 million in Q1 2024, up from $178.1 million in Q1 2023[198] - The OECD's Pillar Two global minimum tax framework is expected to increase tax compliance obligations but not have a monetary impact, as all operating jurisdictions are above the 15% minimum threshold[202] Related Party Transactions This section describes transactions and relationships with related parties, including major stockholders and joint ventures - Roger Penske, CEO, is the largest stockholder (51.5%) and also CEO of Penske Corporation, which, along with Mitsui, has a stockholders agreement governing director elections[203][204] - A voting agreement limits Penske Corporation's voting power for shares exceeding 43.57% of outstanding voting securities, requiring them to vote in proportion to other stockholders[205] - The company has joint venture relationships for automotive dealerships and non-automotive investments, including a 28.9% interest in PTS and 28% in Penske Commercial Leasing Australia[210][211] Cyclicality This section discusses the cyclical nature of motor vehicle sales and the company's strategies to mitigate these impacts - Motor vehicle sales are historically cyclical, influenced by economic conditions, consumer confidence, discretionary spending, inflation, fuel prices, interest rates, and credit availability[212][213] - The company mitigates cyclical impacts through geographic diversification, focus on higher-margin service and parts revenue, and diversification of its customer base[213] Seasonality This section describes the seasonal trends affecting vehicle sales in the company's U.S. and U.K. operations - U.S. operations typically see higher vehicle sales in Q2 and Q3 due to consumer trends and new model introductions, with lower demand in winter months[214] - U.K. operations experience higher new vehicle sales in Q1 and Q3 due to registration practices[214] Inflation This section discusses the potential impacts of higher inflation rates on the company's costs, demand, and credit availability - Higher inflation rates affect vehicle and parts prices, employee pay, consumer credit availability, and demand, potentially increasing costs and adversely affecting the business[215] Forward-Looking Statements This section highlights the forward-looking nature of the report and outlines key risks and uncertainties affecting future performance - The report contains forward-looking statements regarding future performance, acquisitions, capital expenditures, liquidity, and industry trends, subject to various known and unknown risks and uncertainties[216][217] - Key risk factors include macro-economic conditions, supply chain disruptions, changes in the retail model (e.g., agency model, EV adoption), regulatory changes, and the performance of joint ventures like PTS[217][218] Item 3. Quantitative & Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily from changes in interest rates on its variable-rate debt and fluctuations in foreign currency exchange rates due to international operations - A 100-basis-point change in interest rates would result in an approximate $3.9 million change to annual other interest expense and a $36.3 million change to annual floor plan interest expense[221][222] - The company manages interest rate exposure through a mix of fixed and variable rate debt, and the use of authorized derivative instruments[223] - A ten percent change in average foreign currency exchange rates versus the U.S. Dollar would result in an approximate $337.2 million change to revenues for Q1 2024[224] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and states that there were no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2024[227] - No material changes in internal control over financial reporting occurred during the most recent quarter[228] PART II — OTHER INFORMATION This section includes legal proceedings, updated risk factors, information on equity sales, other disclosures, and required certifications Item 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business but does not anticipate any individually or in aggregate to have a material adverse effect on its financial condition or results of operations - The company is not a party to any legal proceedings, including class action lawsuits, that are reasonably expected to have a material effect on its operations[229] Item 1A. Risk Factors This section updates and expands on the risk factors previously disclosed, highlighting new and ongoing risks such as adverse conditions affecting manufacturers, supply chain disruptions, regulatory changes impacting vehicle sales (e.g., zero-emission mandates), and specific risks related to Penske Transportation Solutions - The company's success is highly dependent on the success and availability of key automotive brands (BMW/MINI, Audi/VW/Porsche/Bentley, Toyota/Lexus, Mercedes-Benz/Sprinter/smart) and commercial truck brands (Freightliner, Western Star)[230] - Recent events like vehicle shipment delays due to sub-component issues, the Port of Baltimore closure, and a Freightliner truck supplier fire have impacted vehicle deliveries and may materially affect the company[231] - New regulations, such as CARB's Advanced Clean Trucks and Fleet rules and EPA's GHG emissions standards, require market shifts to zero-emission vehicles, potentially increasing costs and affecting demand and resale values for PTS and PTG[233][234][235] - New emissions limits and bans on gasoline/diesel vehicle sales in various regions (e.g., U.K., Europe, California) could adversely affect prices, availability, and demand for vehicles sold[236][237] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the company's common stock repurchases under its securities repurchase program during the first quarter of 2024 Common Stock Repurchases (Three Months Ended March 31, 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------ | :------------------------------- | :--------------------------- | | January 1 to January 31, 2024 | 72,638 | $149.36 | | February 1 to February 29, 2024 | 148,691 | $148.41 | | March 1 to March 31, 2024 | — | — | | Total | 221,329 | | - The company repurchased 221,329 shares of common stock for $32.9 million in Q1 2024, with $182.6 million remaining under the repurchase authorization[239] Item 5. Other Information This section states that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the first quarter of 2024 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2024[241] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including various agreements, certifications, and XBRL interactive data files - Exhibits include the Form of Restricted Stock Unit Agreement, Voting Agreement, List of Guarantor Subsidiaries, Rule 13(a)-14(a)/15(d)-14(a) Certifications, Section 1350 Certification, and XBRL interactive data files[244] SIGNATURES This section contains the required signatures of the registrant's Chief Executive Officer and Chief Financial Officer, certifying the report's submission - The report is signed by Roger Penske, Chief Executive Officer, and Michelle Hulgrave, Chief Financial Officer, on April 30, 2024[249]